Please ensure Javascript is enabled for purposes of website accessibility

Fed Taper in Spotlight for the Dow Jones Today as Yellen Goes Back to Capitol Hill

By Dan Dzombak – Feb 27, 2014 at 1:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Dow is up today as Federal Reserve Chairwoman Janet Yellen took questions from senators today on the economy and Fed Taper.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average (^DJI 0.45%) was up 52 points, to 16,250, as of 1:30 p.m. after Federal Reserve Chairwoman Janet Yellen testified before a Senate panel on the central bank's monetary policy. The S&P 500 (^GSPC -0.03%) was up six points to 1,851.

The market has been waiting all week for Yellen's testimony before the Senate Banking, Housing, and Urban Affairs Committee. Many were dismayed to find out that the new Fed chief submitted the same prepared remarks that she used for her Feb. 11 testimony before the House Financial Services Committee.

Yellen did veer away from her prepared remarks at one point to comment on the potential connection between the tough winter weather and a recent spate of bad economic data: "Since my appearance before the House committee, a number of data releases have pointed to softer spending than many analysts had expected. Part of that softness may reflect adverse weather conditions, but at this point it is difficult to discern how much."

In the question and answer session that followed, Yellen indicated that the Fed is moving away from a specific unemployment target given that the unemployment rate is so close to their original target of 6.5%. She said: "Of course, the unemployment rate is not a sufficient statistic to measure the health of the labor market. As we go to a fuller consideration of how the labor market is performing, we need to take all of those things into account." It should be noted that this is not a new development, as the specific wording related to the Fed taper in Federal Open Market Committee statements has noted (italics are mine) "the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent."

The key point to take away from all this is that it looks like nothing has changed to make the Fed slow the tapering of its long-term asset purchases. As long as further data doesn't show a significant slowing of the economy I fully expect the Fed to announce another $10 billion taper of its asset purchases at its next policy meeting on March 18 and 19.

What's an investor to do?
In any event, your investment strategy shouldn't be dependent on the statements of the Fed. For me, the story remains the same. The economy continues to slowly grow, the jobs market is getting healthier, and the market is still overvalued. I'm holding some extra cash, continuing to educate myself, find great companies, and invest for the long term.

Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$34,347.03 (0.45%) $152.97
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,026.12 (-0.03%) $-1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.